Self Employed Vs Employee

If your worker is an independent contractor (self-employed) or an employee?

Recently a new client that came to me and complain that his previous accountant did not advised him whether to pay his workers as self-employed individuals or employees. If Canadian Revenue Agency determines that your worker is an employee rather than self-employed, it can be very expensive both you and your employee. It is true, that it is more attractive to hire or to be hired as self-employed person then an employee because employer don’t get to pay the CPP or QPP or other benefits, on the other hand there are many deduction available to self-employer individuals.

So, the big tax advantage for the self-employed workers, of course, is the potential for tax deductions. A self-employed person can deduct all reasonable business expenses. That sounds great! But be aware! But if a business hires a self-employed worker who is later deemed to be an employee, both parties lose big as unpaid taxes, penalties, interest, CPP and EI premiums will all have to be paid.

Distinction between employee vs. self-employed:

Your worker will be considered to be self-employed if that person is free to choose the means of carrying out a contract and no relationship of subordination exists between you and that person. Conversely, your worker will be considered to be an employee if, under a written or verbal contract, that person undertake for a limited time to do work for remuneration under the direction or control of you. In order to determine whether a worker is an employee or a self-employed person, government will assess the degree of subordination existing between the worker and the person who provides the work according to six basic criteria. These criteria are interrelated and must be considered as a whole.

The six criteria are as follows:

  • Subordination in the Performance of Work
  • Financial or Economic Criterion:
  • Ownership of Tools
  • Integration of the Tasks Carried Out by the Worker
  • Specific Result of the Work
  • The Parties’ Attitude Regarding Their Relationship

If you need to determine your workers are self-employed of employee please give us a call at 514-585-6848 or you can also visit us at

Please note: This article is not a substitute for professional advice. We recommend that you seek professional advice before making or considering or making important decision.

Leave a Reply

Your email address will not be published. Required fields are marked *